MANAGEMENT by Sandi Webster, PhD Liquidation vs. Selling Understanding the pros and cons of each exit path Every business, whether a thriving conglomerate or a modest start-up, has a lifecycle. This cycle has phases of growth, plateaus, and sometimes, decline. Exiting the business world is inevitable, and while it may seem daunting, it’s essential to understand how to accomplish it smartly. Let’s shed light on two of the most traversed exit pathways: liquidation and selling. I had a marketing and analytics company with my business partner. We built it to sell as that would be our “old-age pension plan.” We had a service business without tangible assets – there was nothing to liquidate. Tangible assets include inventory, a building, rolling stock, manufacturing equipment or machinery, or office furniture. There are two types of tangible assets: inventory and fixed assets. We would choose between liquidating and selling if we had a manufacturing company. As we delve deeper, we’ll explore the intricacies, the merits, and the potential pitfalls of each. Liquidation: Beyond the Basics At its core, liquidation is wrapping up business operations and selling off assets to convert them into cash. But why do businesses choose this? Some reasons include Shifting Market Dynamics (technological advancements or new regulations), Unsustainable Overheads (unmanageable operating costs), or Personal Reasons (owner’s issues). The Silver Lining: Pros of Liquidation Immediate financial relief is one of the primary advantages of liquidation to generate funds rapidly. Liquidation is beneficial for settling any outstanding obligations. Once you’ve liquidated, all ties to vendors, clients, or other stakeholders are severed. With a detailed, accurate inventory of assets and the right buyers, liquidation can be more straightforward than navigating the complex waters of selling. The Flip Side: Cons of Liquidation A business can compromise returns when rushed sales or auctions might not fetch the optimal market price for assets. Compromising could result in a loss, especially when assets have a significant market value. Liquidation can look like a failure, potentially affecting future entrepreneurial ventures. Also, businesses aren’t just about numbers. Witnessing its dissolution can be emotionally challenging. I know business owners who identified so strongly with their companies that they re-purchased it as the emotional toll was so high. Selling: Passing the Baton The act of selling involves transferring the business mantle to another entity. This transfer isn’t merely about assets, client relationships, brand reputation, and ongoing projects. We researched and discovered the type of sale we wanted early in the process. Types of sales can vary: ■ Outright Sale: After the finalization of the sale, the previous owner has no operational ties to the business. We had Fortune 500 corporate clients with whom we built critical relationships, so we decided against this type of sale. ■ Strategic Mergers: This involves combining with another business to form a more formidable market entity. We investigated a merger Andrii Yalanskyi / Shutterstock.com 28 enterprising Women
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